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Asian Paints Ltd has been battling severe cost inflation, and its strategy of taking slow price hikes had become a sore point for its investors. But there is some relief for investors on this front. According to analysts at Edelweiss Securities Ltd, the market leader in decorative paints is taking another round of price hike in a month from 5 December.

“Our sense is that the latest hike is 4–5%. This would bring the total hike to around 19% year-on-year (y-o-y)," said the Edelweiss report dated 16 November. Investors would reckon that Asian Paints saw robust volumes growth of 34% in the September quarter. However, its gross margins contracted by a severe 970 basis points y-o-y, as prices of key input material titanium dioxide and other crude-based monomers remain elevated. One basis point is one hundredth of a percentage point.

A hard hit
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A hard hit

Asian Paints took a 4% price increase during the September quarter on a 6% sequential increase in raw material costs. Dealers’ channel checks by various brokerages showed that the company had raised prices in October by around 5-6% across various products. Shares of the firm ended Wednesday’s session up by around 2.5%, reflecting the optimism over price hikes. Typically, industry peers tend to follow Asian Paints when it comes to hiking prices. Therefore, the firm’s latest move bodes well for investors of most paint stocks.

The flip side of price increases is the potential dampening of volumes. Investors need to watch out for Asian Paints’ volume growth as well as that of the industry in the coming quarters. While demand remains robust, analysts point out that much of this is pent-up and high volume growth for the industry is ending. “Price increases will boost revenues, but dampen demand growth," analysts at IIFL Securities Ltd said in a report.

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